Let's face it, there's a general anxiety about the future of America.  There's Tom Friedman's column today, which my doctors have now forbade me from critiquing in order to keep my blood pressure down.  Books suggesting the United States is kowtowing to China are forthcoming.  The Economist recently observed on the highlights of a sobering survey of Harvard Business School graduates, which contained the following:

Fully 71% of the businesspeople polled expected America’s competitiveness to decline over the next three years. (National competitiveness is a slippery concept: countries do not compete in the same way that firms do. But the businessfolk in question answered some clearer questions, too.) Some 45% said that American firms will find it harder to compete in the global economy. A startling 64% said that American firms will find it harder to pay high wages and benefits.

Intriguingly, the Harvard alumni were gloomy about where America is headed, rather than how it is now. Some 57% felt that today the business environment in America is somewhat or much better than the global average; only 15% said it was worse. But when asked to compare its prospects with those of other industrialised economies, only 9% felt that America was pulling ahead; some 21% said it was falling behind. A striking 66% expected America to lose ground to Brazil, India and China; only 8% thought it would pull away from them.

This would seem to jibe with popular laments about why Apple can't make its products domestically.  There are a lot of reasons, but a significant one is the lack of necessary skills for higher-end manufacturing.  This is in no small part because American students shy away from the training necessary to do these kind of jobs even if they originally think they want to be engineers.   Why?  Because American college students don't like doing homework. 

So, America is doomed, right? 

To be honest, this sounds like a lot of pious baloney.  As Michael Beckley points out in a new article in International Security, "The United States is not in decline; in fact, it is now wealthier, more innovative, and more militarily powerful compared to China than it was in 1991."  The whole article is worth a read, and a good cautionary tale on the dangers of overestimating the ease of national catch-up:

The widespread misperception that China is catching up to the United States stems from a number of analytical flaws, the most common of which is the tendency to draw conclusions about the U.S.-China power balance from data that compare China only to its former self. For example, many studies note that the growth rates of China’s per capita income, value added in hightechnology industries, and military spending exceed those of the United States and then conclude that China is catching up. This focus on growth rates, however, obscures China’s decline relative to the United States in all of these categories. China’s growth rates are high because its starting point was low. China is rising, but it is not catching up.

What about the future?  One could point to the last few months of modestly encouraging economic data, but that's ephemeral.  Rather, there are three macrotrends that are worth observing now before (I suspect) they come up in the State of the Union: 

1)  The United States is successfully deleveraging.  As the McKinsey Global Institute notes, the United States is actually doing a relatively good job of slimming down total debt -- i.e., consumer, investor and public debt combined.  Sure, public debt has exploded, but as MGI points out, that really is the proper way of doing things after a financial bubble:

The deleveraging processes in Sweden and Finland in the 1990s offer relevant lessons today. Both endured credit bubbles and collapses, followed by recession, debt reduction, and eventually a return to robust economic growth. Their experiences and other historical examples show two distinct phases of deleveraging. In the first phase, lasting several years, households, corporations, and financial institutions reduce debt significantly. While this happens, economic growth is negative or minimal and government debt rises. In the second phase of deleveraging, GDP growth rebounds and then government debt is gradually reduced over many years....

As of January 2012, the United States is most closely following the Nordic path towards deleveraging. Debt in the financial sector has fallen back to levels last seen in 2000, before the credit bubble, and the ratio of corporate debt relative to GDP has also fallen. US households have made more progress in debt reduction than other countries, and may have roughly two more years before returning to sustainable levels of debt. 

Indeed, the deleveraging is impressive enough for even Paul Krugman to start sounding optimistic: 

the economy is depressed, in large part, because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. And if you squint hard at recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising.

Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front.

2) Manufacturing is on the mend.  Another positive trend, contra the Harvard Business School and the GOP presidential candidates, is in manufacturing.  Some analysts have already predicted a revival in that sector, and now the data appears to be backing up that prediction.   The Financial Times' Ed Crooks notes:

Plenty of economists and business leaders believe that US manufacturing is entering an upturn that is not just a bounce-back after the recession, but a sign of a longer-term structural improvement. Manufacturing employment has grown faster in the US since the recession than in any other leading developed economy, according to official figures. Productivity growth, subdued wages, the steady decline in the dollar since 2002 and rapid pay inflation in emerging economies have combined to make the US a more attractive location.

“Over the past decade, the US has had some huge gains in productivity, and we have seen unit labour costs actually falling,” says Chad Moutray, chief economist at the National Association of Manufacturers. “A lot of our members tell us that it sometimes is cheaper to produce in the US, especially because labour costs are lower.”

Now, whether this boom in manufacturing will lead to a corresponding boom in manufacturing employment is much more debatable.  Still, as The Atlantic's Adam Davidson concludes:  "the still-unfolding story of manufacturing’s transformation is, in many respects, that of our economic age. It’s a story with much good news for the nation as a whole. But it’s also one that is decidedly less inclusive than the story of the 20th century."

3) A predicted decline in energy insecurity.  British Petroleum has issued their Energy Outlook for 2030.  The Guardian's Richard Wachman provides a useful summary:

Growth in shale oil and gas supplies will make the US virtually self-sufficient in energy by 2030, according to a BP report published on Wednesday.

In a development with enormous geopolitical implications, the country's dependence on oil imports from potentially volatile countries in the Middle East and elsewhere would disappear, BP said, although Britain and western Europe would still need Gulf supplies.

BP's latest energy outlook forecasts a growth in unconventional energy sources, "including US shale oil and gas, Canadian oil sands and Brazilian deepwater, plus a gradual decline in demand, that would see [North America] become almost totally energy self-sufficient" in two decades.

BP's chief executive, Bob Dudley, said: "Our report challenges some long-held beliefs. Significant changes in US supply-and-demand prospects, for example, highlight the likelihood that import dependence in what is today's largest energy importer will decline substantially."

The report said the volume of oil imports in the US would fall below 1990s levels, largely due to rising domestic shale oil production and ethanol replacing crude. The US would also become a net exporter of natural gas.

Note that this will take a while, and doesn't mean that the U.S. will be energy independent.  Still, it's quite a trend.  Or, rather, trends.   

Since the Second World War, the pattern in the global political economy has been for the United States to adjust to systemic shocks better than any potential challenger country.  A lot of very smart people have predicted that this time was different -- the United States wouldn't be able to do it again.  These trends suggest that maybe, just maybe, that might be wrong. 

Am I missing anything? 

With 2011 down to a few hours, it's now safe to announce the 2011 Albies -- named in honor of noted political economist Albert O. Hirschman.  The Albies are awarded to the best writing in global political economy for the past calendar year.  The writing can be in a book, journal article, think tank report, or blog post -- the key is that the article makes you reconsider the way the world works. 

This year yielded a bumper crop of excellent IPE writing.  I attribute this to the 2008 crisis and its aftereffects generating such a bounty of fascinating trends/events that even straight reportage has been interesting.  Indeed, it was such a good year that, for the first time, I'm including some "honorable mentions" at the bottom. 

In no particular order, here's the top 10:

1)  Chrystia Freeland, "The Rise of the New Global Elite," The Atlantic, January/February 2011.  A slender common thread of the Arab Spring protests, Occupy Wall Street, and the Russia protests was a perception of rising inequality, and the refusal of elites to acknowledge that there is even a problem. Before any of these movements made the front page, Freeland examined the global 1% in this essay.  As much as political scientists like to talk about public ignorance of the way the world works, Freeland makes the case that the global elite suffers from a different but very dangerous perception -- that fortuna and inherited advantage had no role in their own prosperity. 

2)  Thomas Oatley, "The Reductionist Gamble:  Open Economy Politics in the Global Economy," International Organization, April 2011.  Over the past decade, the "open economy politics" paradigm has dominated the study of global political economy.  There are some strengths to this kind of approach, but the law of diminishing marginal returns kicked in a long time ago (OEP has little to say about the 2008 financial crisis).  Oatley's paper -- published in the leading journal -- was a powerful wake-up call to the subfield.  

3)  Tyler Cowen, The Great Stagnation, Dutton.  Americans have taken prospertity, and the engines of prosperity, for granted.  Cowen's short book suggests that, appearances to the contrary, all of the easy ways for promoting economic growth in the developed world have dried up.   I would posit that Cowen contradicts himself with his innovative way of getting this argument published (first as an ebook) but this is an excellent, accessible read on the future of the U.S. economy.   

4)  Boston Consulting Group, "Made in America, Again," May, and Edward Luce, "America is Entering a New Age of Plenty," Financial Times, November 20.  These two essays provide an interesting counter to Cowen's prognosis. BCG's projections on manufacturing, and Luce's summary on energy innovations, suggest that a decade from now -- regardless of who is president -- the United States will be a manufacturing and energy powerhouse.

5)  Damien Cave, "Better Lives for Mexicans Cut Allure of Going North," New York Times, July 6, 2011.  I blogged about this story when it was first published about why it was so interesting.  Now, I just want the debate moderators to hold it up like John Cusack in Say Anything whenever the GOP candidates natter on about stopping illegal immigration. 

6)  Jacopo Ponticelli and Hans-Joachim Voth, "Austerity and Anarchy:  Budget Cuts and Social Unrest in Europe, 1919-2009," Centre for Economic Policy Research discussion paper no. 8513, August 2011.  2012 is going to be a year of austerity for a lot of countries.  This timely paper looks at the causes of European social unrest over the 20th century, and concludes that fiscal retrenchment is the primary driver of unrest.  Bear this in mind whenever you read about new austerity measures being imposed. 

7)  Andrew Hill, "Inside McKinsey," FT Magazine, November 25. As the GOP looks set to nominate a former consultant as its standard-bearer, the culture of management consulting is worth considering.  McKinsey is to consulting as Goldman Sachs was to management consulting, and this year a scandal has rocked that firm to the core.  Hill's FT story gets at the powerful corporate culture that defines McKinsey -- and the ways in which the renumeration gap between management consultants and hedge fund managers led to a breakdown in McKinsey's norms.

8)  Prabhat Jha et al, "Trends in selective abortions of girls in India," The Lancet, June 4, 2011.  I blogged about this article back in May.  Long story short:  as India has grown richey, India's educated, wealthy elite have engaged in selective gender-based abortion on a massive scale.  A very sobering reminder that modernizing societies will not necessarily become more Western in their values. 

9)  Rosemary Foot and Andrew Walter, China, the United States, and Global Order, Cambridge University Press.  To repeat what I said here: 

One does not have to dig very deep into foreign-policy punditry to find the belief that the question of the next decade is how world order will adapt to a waxing China and a waning United States. Will China embrace, reject, or simply ignore the set of pre-existing global norms? Will the United States continue to assert its privilege in setting global norms, or will it retreat into unilateralism? Beyond the punditry, very few scholars have bothered to look systematically at how both of these countries interact with global governance norms and structures. Rosemary Foot and Andrew Walter tackle the general question of Sino-American interactions with global rules and norms in a rigorous and informative manner, discussing issues as diverse as nonproliferation and financial regulation with a degree of empirical sophistication that borders on the astonishing. Foot and Walter have produced a must-read for anyone interested in the future of global governance

10) Michael Forsythe and Henry Sanderson, "China Debts Dwarf Official Data with Too-Big-To-Finish-Alarm," Bloomberg News, December 17, 2011.  This was the year that China bears came to the forefront.  I'm a bit more optimistic about the communist regime's prospects than, say, Gordon Chang, but this piece of investigative reporting by Bloomberg does a fine job of demonstrating the depths of the bad debt problem that pervades China's banking sector. 

Honorable mentions:  Nouriel Roubini, "China's Bad Growth Bet," Project Syndicate; Henry Farrell's "contagion" blog post, The Monkey Cage, August 15, 2011; J.C. Chandor's audacous directorial debut Margin Call, and, last but not least, the Ryan Gosling International Development Tumblr. 

You know, the one thing the people on the left and the right in this country seem to agree about is that everything must be done to enable America's "job creators." 

I bring this up because The Fletcher School is, well, creating a job: 

Assistant Professor of International Political Economy

Rank of assistant professor beginning September 2012. While we are open to specialty, consideration will be given to candidates with a substantive interest in emerging market economies or Europe and a methodological interest in quantitative approaches (emphasis added).

Review of applications will begin January 3, 2012.  Questions relating to this search should be emailed to IPEsearch-at-Tufts.edu

Now I know there's just a booming market for junior IPE types, so I'm sure no one reading this will be interested in a tenure-track position in the Boston area.  Still, I thought I'd put it out there. 

And, now that my home institution is actually creating a job, I'd like all of the tax cuts and subsidies that politicians seem so eager to proffer nowadays.  That, or a dedicated parking spot. 

Yesterday, in commenting on the eurozone crisis, Barack Obama said the two words all political scientists hate to see: 

"Europe is wealthy enough that there's no reason why they can't solve this problem," Obama told reporters at the White House.

"If they muster the political will, they have the capacity to settle markets down, make sure that they are acting responsibly and that governments like Italy are able to finance their debt." (emphasis added)

By and large, political scientists hate the concept of political will.  As I've said numerous times on the blog, "political will" is usually tantamount to saying, "if only politicians would completely ignore short-term political incentives and do the right thing!"  Or, to put a finer point on it, "if only politicians stopped acting like politicians!"  Because we as a profession tend to focus on structural forces and immutable preferences, "leadership" as a variable often (though not always) falls by the wayside. 

Looking at the latest EU summit/eurozone machinations, however, I'm beginning to wonder if we need to think about "first image" explanations for what just happened.  As the Wall Street Journal, Felix Salmon, Financial Times, Paul Krugman,  and Economist are all reporting, it was pretty friggin' disastrous.  Salmon provides the most complete autopsy -- here's a snippet: 

[A]nother half-baked solution is exactly what we got. Which means, I fear, that it is now, officially, too late to save the Eur ozone: the collapse of the entire edifice is now not a matter of if but rather of when.

For one thing, fracture is being built into today’s deal: rather than find something acceptable to all 27 members of the European Union, the deal being done is getting negotiated only between the 17 members of the Euro zone. Where does that leave EU members like Britain which don’t use the euro? Out in the cold, with no leverage. If the UK doesn’t want to help save the euro — and, by all accounts, it doesn’t — then that in and of itself makes the task much more difficult.

But that’s just the beginning of the failures we’re seeing from European leaders right now. It seems that German chancellor Angela Merkel is insisting on a fully-fledged treaty change — something there simply isn’t time for, and which the electorates of nearly all European countries would dismiss out of hand. Europe, whatever its other faults, is still a democracy, and it’s clear that any deal is going to be hugely unpopular among most of Europe’s population. There’s simply no chance that a new treaty will get the unanimous ratification it needs, and in the mean time the EU’s crisis-management tools are just not up to dealing with the magnitude of the current crisis.

The fundamental problem is that there isn’t enough money to go around. The current bailout fund, the European Financial Stability Facility, is barely big enough to cope with Greece; it doesn’t have a chance of being able to bail out a big economy like Italy or Spain. So it needs to beef up: it needs to be able to borrow money from the one entity which is actually capable of printing money, the European Central Bank.

But the ECB’s president, Mario Draghi, has made it clear that’s not going to happen. Draghi is nominally Italian but in reality one of the stateless European technocratic elite: a former vice chairman and managing director of Goldman Sachs, he’s perfectly comfortable delivering Italy the bad news that he’s not going to lend her the money she needs. He’s very reluctant to lend it directly, he won’t lend it to the EFSF, and he won’t lend it to the IMF. Draghi has his instructions, and he’s sticking to them — even if doing so means the end of the euro zone as we know it.

So, what explains this mess -- the inexorable structural problems of the European Union, or the lack of political leadership?  At this point, I'm genuinely uncertain.  For example, the facile explanation for British Prime Minister David Cameron's rejection of an EU treaty is catering to his domestic interests -- namely the British financial sector.  Then, however, we get to this bit from the Economist: 

After much studied vagueness on his part about Britain's objectives, Mr Cameron's demand came down to a protocol that would ensure Britain would be given a veto on financial-services regulation (see PDF copy here. The British government has become convinced that the European Commission, usually a bastion of liberalism in Europe, has been issuing regulations hostile to the City of London under the influence of its French single-market commissioner, Michel Barnier. And yet strangely, given the accusation that Brussels was taking aim at the heart of the British economy, almost all of the new rules issued so far have been passed with British approval (albeit after much bitter backroom fighting). Tactically, too, it seemed odd to make a stand in defence of the financiers that politicians, both in Britain and across the rest of European, prefer to denounce....

Britain may assume it will benefit from extra business for the City, should the euro zone ever pass a financial-transaction tax. But what if the new club starts imposing financial regulations among the 17 euro-zone members, or the 23 members of the euro-plus pact? That could begin to force euro-denominated transactions into the euro zone, say Paris or Frankfurt. Britain would, surely, have had more influence had the countries of the euro zone remained under an EU-wide system.

As for Merkel, well, my take on her leadership style has been documented already.  She's dealing with an opposition that is castigating her for not taking swifter and more drastic action to resolve the eurocrisis.  In response, she's pushing for changes that will take months, if ever, to accomplish -- and, if they are accomplished, have no guarantee of actually solving the problem.  It doesn't seem like the eurozone has that time. 

As for Draghi, well, one could attribute his range of half-hearted measures to his excessively cautious leadership -- after all the ECB is an ostensibly independent institution, so presumably Dragh has the greatest amount of autonomy.  It's not that simple, however -- Draghi wouldn't have been selected as the new ECB head unless he demonstrated the kind of policy traits that made him acceptable to Germany in the first place.  Oddly enough, although Draghi currently has the most freedom of action, the structures that ensured he would become the new ECB head ensured he would be the least likely person to exploit that freedom. 

So, stepping back, there appears to be a role for the quality of political leadership as an explanatory factor for the current eurozone crisis.  Properly defining that role, however, is beyond the capacity of this blog post. 

What do you think? 

Hey, remember my last bloggingheads, when I went to the 1930s analogy to describe the current problems in the global political economy?  Well, that was a few days ago, and my, how things have changed -- to make that 1930's analogy even more powerful.  The eurogoggles metahor may be coming to an end -- because the situation is so dire that even the cheeriest summit won't alter perceptions in financial markets. 

After a week of gyrating europolitics on the Greek bailout and meaningless G-20 summitry, markets and media will be focused on Italy this week.  This matters -- for both Europe and the world, Greece is a diverting sideshow compared to a major financial collaspse in Italy.  The pressure on Italian PM Sylvio Berlusconi to resign have gotten so loud that he had to take to his Facebook page to say, "The rumors of my resignation are groundless."   New rule of thumb:  any time a politician follows Sarah Palin's lead, there's going to be a problem. 

The Daily Telegraph's Ambrose Evans-Pritchard explains the eurofarce that is currently playing out: 

As of late Friday, the yield spread on Italian 10-year bonds over German Bunds was a post-EMU record of 458 basis points. This is dangerously close to the point where cascade-selling begins and matters spiral out of control.

The European Central Bank has so far bought time by holding a series of retreating lines but either it has reached its intervention limits after accumulating nearly €80bn of Italian debt, or it is holding fire to force Silvio Berlusconi to resign – if so, a foolish game.

The ECB’s hands are tied. A German veto and EU treaty constraints stop it intervening with overwhelming force as a genuine lender of last resort. The bank is itself at risk of massive over-extension without an EU treasury and single sovereign entity to back it up.

This lack of a back-stop guarantor is an unforgivable failing in the institutional structure of monetary union....

The spreads on EFSF 5-year bonds have already tripled to 151 above German debt, leaving Japan and other early buyers nursing a big loss. The fund suffered a failed auction last week, cutting the issue from €5bn to €3bn on lack of demand.

Gary Jenkins from Evolution Securities said the “frightening” development is that the EFSF is itself being shut out of the capital markets. “If it continues to perform like that then the bailout fund might need a bail out,” he said.

Europe’s attempt to widen the creditor net by drawing in the world’s reserve states evoked near universal scorn in Cannes and a damning put-down by Brazil’s Dilma Rousseff. “I have not the slightest intention of contributing directly to the EFSF; if they are not willing to do it, why should I?”

Europe is resorting to such antics because its richer states – above all Germany -- still refuse to face up to the shattering implications of a currency that they themselves created, and ran destructively by flooding the vulnerable half of monetary union with cheap capital.

Simon Johnson is, er.... less than optimistic about these developments: 

MIT Sloan School of Management professor Simon Johnson didn’t equivocate on the perils of the current global economic environment. “We have built a dangerous financial system in the United States and Europe,” said the former chief economist at the International Monetary Fund. “We must step back and reform the system.”

Professor Johnson cited alarming parallels with October 1931, when “people thought the worst was behind them, but the smart people were wrong and instead the crisis just broadened.”  (emphasis added) 

I've said it before and I'll say it again:  any time the global economy is counting on Sylvio Berlusconi to do the right thing is not a good time. 

Developing.... 

At 8:30 this morning U.S. Secretary of State Hillary Clinton will give  "a major address on the role of economics in our foreign policy."  This speech is the culmination of a series of Clinton speeches and papers over the past few months, including her July remarks in Hong Kong, her essay on America's Pacific Century in the pages of FP, and her remarks on global leadership earlier this week. 

Laura Rozen has been all over this initiative, and she previews the speech: 

A key precept in Clinton's effort is addressing a kind of cultural lag in the sprawling Washington bureaucracy. Lead policy makers may recognize the pivotal role that economics plays in global diplomacy--but in many ways, the diplomatic bureaucracy needs to catch up. Clinton's planned speech will be in large part a call to her own agency's ambassadors, diplomatic staff and analysts to shift their thinking.

And as Clinton lays out that vision in more detail, she will stress two main bulwarks. First, she will highlight the need to advance relations with the wider world as part of the effort to revive the American domestic economic order. And second, she will stress that State Department diplomats and foreign policy thinkers need to work harder to understand how market forces are driving first-order national security challenges in hot spots such as Afghanistan, Iraq and Iran.

Now, as I noted last week, my full disclosure here is that I've seen multiple draft versions of this speech and might have made a modest suggestion or two (because you, dear readers, know how gentle I am with the red pen).  Last week, I was pretty pessimistic about the effect of this kind of initiative: 

I fear that the State Department is fighting through hurricane-level winds on this front to make a difference. First, the trade deals just sent to Congress are the last ones we're going to see for a while. Doha is dead, the Trans-Pacific Partnership still hasn't materialized, and all of the momentum on trade policy is to move towards futile gestures closure. The dynamic, growing economy is not looking so dynamic, and those deep capital markets are getting extremely jittery.

And this week?  Oddly, I find myself more on the "glass half full" side, for a few reasons.  First, Congress finally cleared the decks on the three outstanding trade deals, so that looks a bit less embarrassing.  Second, there does appear to be genuine enthusiasm inside the administration for the Trans-Pacific Partnership, and a recognition that this would be a neat-o deliverable for the upcoming APEC summit in Honolulu.  Third, my own conversation with State Department officials suggest that they've got a decent read on which geographic regions should be the focus of which initiatives.  Fourth , dwindling resources doesn't mean no resources -- the U.S. still has some formidable foreign economic policy arrows in its quiver. 

The most important reason I'm more optimistic, however, is that the Secretary will be doing two things with this speech that speeches can actually accomplish.  A speech can act as a form of reassurance to other countries that the United States gets it -- economics is a vital component of foreign policy, and Washington is ready to play. 

A speech can also signal to the foreign policy bureaucracy that there's a shift in priorities, and they had better get on the train if they want to get promoted make a difference.  If foreign service officers see that a familiarity with economics is a key for advancement, then the United States will develop a diplomatic corps that doesn't run away screaming in terror seem distracted if the words "exchange rates" or "geographic indicators" are uttered. 

Watch the speech yourself -- it will be webcast at 8:30 AM -- and let me know what you think in the comments. 

Your humble blogger is near the capital of Waterworld Pennsylvania at the moment and all conferenced out. Regular blogging will resume after some sleep.

In the meanwhile, however, please check out FP's latest Deep Dive on the future of currencies. I have a contribution on the dollar's future as the world's reserve currency. It's depressing to note that the thing I like best about it is it's title -- which, of course, someone else at FP created.

Enjoy!

Remember that global political economy funk I was feeling about ten days ago?  I think Felix Salmon caught it, and caught it bad.  Riffing off of a George Magnus research note for UBS, Salmon thinks that we're currently experiecing, "the most uncertain outlook, in terms of the global political economy, since World War II ended and the era of the welfare state began." 

If you think that's dramatic, consider this paragraph: 

Most fundamentally, what I’m seeing as I look around the world is a massive decrease of trust in the institutions of government. Where those institutions are oppressive and totalitarian, the ability of popular uprisings to bring them down is a joyous and welcome sight. But on the other side of the coin, when I look at rioters in England, I see a huge middle finger being waved at basic norms of lawfulness and civilized society, and an enthusiastic embrace of “going on the rob” as some kind of hugely enjoyable participation sport. The glue holding society together is dissolving, whether it’s made of fear or whether it’s made of enlightened self-interest.

Magnus says something similar in his note, lamenting the "malaise in politics and policymaking," albeit conceding that, "While there is plenty of talk about endgames of war and conflict, muddling through and the rediscovery of good politics are just as, if not more likely."  Walter Russell Mead nods along sagely, while John Sides is more skeptical. 

In part for reasons proffered here, I'm more sympathetic to Sides than Salmon.  Another reason is that Salmon's gloominess seems to be swamping the data.  Edelman's 2011 Trust Barometer, for example, suggests that Salmon is exaggerating the "massive decrease of trust" across-the-world claim juuust a wee bit.  That survey is not perfect (it's targeted at the top 25% of income-earners).  It's also not all good news -- the advanced industrialized democracies are not strong reservoirs of trust right now.  That said, the increase in trust -- not to mention the continued decrease in crime in kep places --  is broad-based enough to suggest that perception is overwhelming reality. 

I'm not without concerns -- the disconnect at the global economic governance level is pretty disconcerting, and even G-20 optimists are starting to sound like me.  Furthermore, the longer that sluggish growth and anemic job creation persists in the advanced industrialized democracies, the gloomier things get.  If Reinhart and Rogoff are correct,  Salmon is just demonstrating rational expectations. 

Still, given the general suckiness of the global political economy over the past few years, what's striking is not the signs that the world is falling apart, but rather the dogs that haven't barked. 

What do you think? 

[WARNING:  THE FOLLOWING IS AN OPTIMISTIC GLOBAL POLITICAL ECONOMY POST]

Note:  in my last blog post, I might have sounded juuuuust a wee bit pessimistic about the state of the global political economy.  That was my intent, but it wasn't necessarily how I actually felt.  My aim was to assemble as negative a brief as possible about the state of the global political economy.  The aim of this post is to argue that, despite all the recent bad news, the fundamentals of the global political economy are surprisingly sound.  I'm not actually as optimistic as the rest of this post suggests, either -- but I do lean more in this direction.  The fact that I'm blogging this from a zombie-proof vacation redoubt should in no way affect your evaluation of the following few paragraphs.  

So, when we last left off this debate, things were looking grim.  My concern in the last post was that the persistence of hard times would cause governments to take actions that would lead to a collapse of the open global economy, a spike in general riots and disturbances, and eerie echoes of the Great Depression.  Let's assume that the global economy persists in sputtering for a while, because that's what happens after major financial shocks.    Why won't these other bad things happen?  Why isn't it 1931? 

Let's start with the obvious -- it's not gonna be 1931 because there's some passing familiarity with how 1931 played out.  The Chairman of the Federal Reserve has devoted much of his academic career to studying the Great Depression.  I'm gonna go out on a limb therefore and assert that if the world plunges into a another severe downturn, it's not gonna be because central bank heads replay the same set of mistakes. 

The legacy of the Great Depression has also affected public attitudes and institutions that provide much stronger cement for the current system.  In terms of publuc attitudes, compare the results of this mid-2007 poll with this mid-2010 poll about which economic system is best.  I'll just reproduce the key charts below: 

The headline of the 2010 results is that there's eroding U.S. support for the global economy,  but a few other things stand out.  U.S. support has declined, but it's declined from a very high level.  In contrast, support for free markets has increased in other major powers, such as Germany and China.  On the whole, despite the worst global economic crisis since the Great Depression, public attitudes have not changed all that much.  While there might be populist demands to "do something," that something is not a return to autarky or anything so drastc. 

Another big difference is that multilateral economic institutions are much more robust now than they were in 1931.  On trade matters, even if the Doha round is dead, the rest of the World Trade Organization's corpus of trade-liberalizing measures are still working quite well.  Even beyond the WTO, the complaint about trade is not the deficit of free-trade agreements but the surfeit of them.  The IMF's resources have been strengthened as a result of the 2008 financial crisis.  The Basle Committee on Banking Supervision has already promulgated a plan to strengthen capital requirements for banks.  True, it's a slow, weak-assed plan, but it would be an improvement over the status quo. 

As for the G-20, I've been pretty skeptical about that group's abilities to collectively address serious macroeconomic problems.  That is setting the bar rather high, however.  One could argue that the G-20's most useful function is reassurance.  Even if there are disagreements, communication can prevent them from growing into anything worse. 

Finally, a note about the possibility of riots and other general social unrest.  The working paper cited in my previous post noted the links between austerity measures and increases in disturbances.  However, that paper contains the following important paragraph on page 19: 

[I]n countries with better institutions, the responsiveness of unrest to budget cuts is generally lower. Where constraints on the executive are minimal, the coefficient on expenditure changes is strongly negative -- more spending buys a lot of social peace. In countries with Polity-2 scores above zero, the coefficient is about half in size, and less significant. As we limit the sample to ever more democratic countries, the size of the coefficient declines. For full democracies with a complete range of civil rights, the coefficient is still negative, but no longer significant.

This is good news!!  The world has a hell of a lot more democratic governments now than it did in 1931.  What happened in London, in other words, might prove to be the exception more than the rule. 

So yes, the recent economic news might seem grim.  Unless political institutions and public attitudes buckle, however, we're unlikely to repeat the mistakes of the 1930's.  And, based on the data we've got, that's not going to happen. 

Your humble blogger is off at another conference again, so blogging will be intermittent for the rest of the week.  However, I wanted to highlight Damien Cave's outstanding New York Times story on the decline of illegal immigration from Mexico to the United States.  The gist of Cave's story: 

The extraordinary Mexican migration that delivered millions of illegal immigrants to the United States over the past 30 years has sputtered to a trickle, and research points to a surprising cause: unheralded changes in Mexico that have made staying home more attractive.

A growing body of evidence suggests that a mix of developments — expanding economic and educational opportunities, rising border crime and shrinking families — are suppressing illegal traffic as much as economic slowdowns or immigrant crackdowns in the United States....

Douglas S. Massey, co-director of the Mexican Migration Project at Princeton, an extensive, long-term survey in Mexican emigration hubs, said his research showed that interest in heading to the United States for the first time had fallen to its lowest level since at least the 1950s. “No one wants to hear it, but the flow has already stopped,” Mr. Massey said, referring to illegal traffic. “For the first time in 60 years, the net traffic has gone to zero and is probably a little bit negative.”

The decline in illegal immigration, from a country responsible for roughly 6 of every 10 illegal immigrants in the United States, is stark. The Mexican census recently discovered four million more people in Mexico than had been projected, which officials attributed to a sharp decline in emigration.

American census figures analyzed by the nonpartisan Pew Hispanic Center also show that the illegal Mexican population in the United States has shrunk and that fewer than 100,000 illegal border-crossers and visa-violators from Mexico settled in the United States in 2010, down from about 525,000 annually from 2000 to 2004. Although some advocates for more limited immigration argue that the Pew studies offer estimates that do not include short-term migrants, most experts agree that far fewer illegal immigrants have been arriving in recent years.

The question is why. 

You'll have to read the whole thing to find out the whys of this phenomenon.  Cave's story is so good, however, that it's worth detailing exactly why the story is so good: 

1)  It's totally counterintuitive.  It flies in the face of the stylized facts about immigration in the U.S. ("we can't control our borders!") as well as Mexico ("the country is falling apart!").  This story bursts every rhetorical bubble that exists in American political debate on this topic.   

 2)  It's also counterintuitive in describing why this phenomenon has occurred.  Much of it is structural -- changing economic circumstances in both countries -- but policy shifts have mattered as well.  Those shifts cut across ideological lines:  dramatically loosened visa restrictions, combined with tougher enforcement, appears to have had some impact. 

3)  Cave relies adriotly on more academic analyses from the Pew Hispanic Center and the Mexican Migration Project at Princeton to back up his interviews and other reportage. 

4)  From a normative policy perspective, this is a win-win story.  As Doug Mataconis notes:

[T]hese are, of course, highly positive developments. That Mexico might stabilize politically and economically and become, if not as prosperous as Canada just yet, at least a far more prosperous southern neighbor than we’ve ever had is a development we should welcome and encourage. Not only because it will reduce cross-border illegal immigration, but also because a strong Mexican economy is good for the U.S. economy. 

 See Joe Klein and Matthew Yglesias on these points as well.  Indeed, it's such good news that stories like this one might not trigger cable news debates about the dreaded (and mythical) NAFTA superhighway. 

[Doesn't declining immigration into the United States foretell long-term doom for America's great power status?--ed.  Immigration undoubtedly provides a dose of demographic vitality for the United States.  Cave's story, however, it about illegal immigration from Mexico.  The data points to high rates of immigration from other Latin American countries and an expansion of legal immigration from Mexico proper.  The U.S. still remains a magnet economy.] 

Your humble blogger is taking a short vacation, because so much friggin' stuff has happened in the past half-year.  Indeed, in 2011 to date, the planet has lived up to FP's motto:  the world is not a boring place.  Wars, revolutions, natural disasters, non-natural disasters, the possibility of sovereign defaults -- for a world politics junkie, it's been very exciting

Does exciting mean the coming of end-times, however?  I ask because the New York Times' Azam Ahmed observes the latest trendy investment --  Armageddon funds:

Since the financial crisis, many investors have prospered from a rebound in the markets. But recent events have led some to brace for the worst.

“Clients are suddenly realizing the world isn’t as rosy as it’s been,” said Ahmed Fattouh, a hedge fund executive. “It makes a lot of sense to have these tail protections on.”

That is, protections against what Wall Street calls “tail risk” — a disaster that is estimated to have less than half a percent chance of happening....

So how do such Armageddon funds work? Take a situation like the collapse of China’s economy, an event considered highly unlikely. While most American investors do not own Chinese stocks, real estate or currency, the fear is that a shock to China would spread to the rest of the world. As the stock markets fell, a tail risk or black swan fund would profit because it owned the options to sell shares in the Standard & Poor’s 500-stock index at far higher levels. The more the index dropped, the more valuable those options would become.

On a related note, Jay Ulfelder looks at the release of the 2011 Failed States Index and Admiral Mike Mullen's worries about a possible increase in the number of failed states.  Ulfelder is more sanguine than Mullen:

So, is the world falling apart, or is it settling down? I’m cautiously confident that the optimists have this one right. To my mind, the trends Alan Taylor identifies are the start of the big development story of the 21st century. After a century in which the global political economy was primarily characterized by the yawning gap in wealth and power between the so-called First and Third Worlds, that gap is finally narrowing. Economic growth is accelerating in countries long mired in a “poverty trap,” and the economic and political benefits of that trend are extending to more and more of the world’s human population. Hundreds of millions of people still live in abject poverty, under authoritarian rule, or both, but the share of the global population living in deep poverty is notably lower than it was just a couple of decades ago (see the chart below, from the World Bank), and the economic takeoffs occurring in many long-poor countries suggest that trend is only broadening....

If things are generally looking up, why are people like Adm. Mullen (if I haven’t misunderstood his remarks) still so worried about the coming anarchy? In a bit of armchair psychology, I wonder if the admiral’s gloomy prognosis is partly a result of confusing uncertainty with risk. The encouraging development trends mentioned above are reordering politics at the international and national levels to a degree not seen in several generations, and no one knows when this turbulent period will end and what its results will be. People are inherently uncomfortable with uncertainty, and it seems like that discomfort often inflates our sense of the risk that worst-case scenarios will come to pass. In other words, our fear of dire outcomes seems to cause us to overestimate the probability that they will occur. In this particular case, I sure hope that’s right.

As pessimistic as I am about the ability of great powers to handle end times, I have to side with Ulfelder here.  Nicholas Taleb made a lot of coin by pointing out the ways in which tail risk events happened far more frequently than expected, but I do wonder if expectations of these events are now biased in the opposite direction.  There is a lot of uncertainty in the world -- but uncertainty and catastrophic outcomes are not the same thing. 

That said, there is another possibility to consider.  From 1945 onewards, one could argue that the chief sources of uncertainty were located in the developing world.  The developing world is becoming more developed, and the developed world is becoming more politically sclerotic.  It's possible that, moving forward, the OECD economies become the primary source of uncertainty -- but this uncertainty doesn't faze developing markets all that much. 

What do you think? 

Your humble blogger is headed to China for the next few days as part of a conference sponsored by the MacArthur Asia Security Initiative and the School of International Studies at Peking University, at which we will be discussing "What roles do power, history, ideas, and other legacies and factors play in shaping the American and Chinese approaches to sovereignty?" and "What is distinctive about the American and Chinese orientations and what are the implications of their preferences for the international order?" and "Could I please have an extra serving of tripe?" OK, that last one will just be a personal quest for yours truly, but you get the idea.

We will also be "Meeting with high-rank officials from the Ministry of Foreign Affairs and the International Liaison Department of the Central Committee of the CPC" -- so with luck, I'll be able to post blog items that will impress Chinese readers more than, say, your average Tom Friedman column. Assuming, that is, that the interwebs are semi-friendly over there.

While I am praying for an upgrade on my flight to Beijing winging my way to the Middle Kingdom, go and contemplate Gideon Rachman's latest in the Financial Times. He points out that should China supplant the United States during this decade, it will be a very strange superpower indeed:

The ascent of China will change ideas of what it means to be a superpower. Over the course of the American century, the world has got used to the idea that the world’s largest economy was also the world’s most obviously affluent nation. The world’s biggest economy housed the world’s richest people.

As China emerges as an economic superpower, the connection between national and personal affluence is being broken. China is both richer and poorer than the western world. It is sitting on foreign reserves worth $3,000bn. And yet, measured at current exchange rates, the average American is about 10 times as wealthy as the average Chinese....

The power of China – combined with anxiety about the frightening public debts being built up in the US, the EU and Japan – will challenge western ideas about the relationship between democracy and economic success. Ever since the US became the world’s largest economy, towards the end of the 19th century, the most powerful economy in the world has been a democracy. But, if China remains a one-party state over the next decade, that will change. The confident western slogan that “freedom works” will come under challenge as authoritarianism becomes fashionable, once again.

What do you think? More tripe, or go for the chow fun instead?

 *A hat tip to @laurenist for the very clever title to this less-than-clever post)

One of the complaints I commonly hear about the study of global political economy is that it's sooooooo boring.  Security studies has guns and bombs!!  IPE/GPE has.... capital adequacy standards. 

Well, I think it's safe to say that events over the weekend have made both global political economy and global governance more interesting: 

Talks on the Greek sovereign debt crisis and French presidential politics were both thrown into disarray after Dominique Strauss-Kahn, managing director of the International Monetary Fund, was escorted off an aircraft in New York over the weekend to face sex charges.

Mr Strauss-Kahn was expected on Sunday to appear before a New York court and plead not guilty to charges of committing a criminal sexual act, attempted rape and unlawful imprisonment, according to his lawyers.

The charges resulted from an alleged incident at the Sofitel Hotel in Manhattan on Saturday afternoon involving a 32-year-old maid who said that she had been sexually assaulted in a $3,000 per night suite in which police found the IMF managing director’s mobile phone. Police said on Sunday night that the maid had picked Mr Strauss-Kahn out of a line-up. Sofitel said the maid had worked for them for three years.

Both the Financial Times and The New Yorker have been all over this since the arrest on Saturday night, and I won't try to replicate their coverage here.  Let's try to parse out a few of the implications: 

1)  The IMF issued a terse statement that boils down to "The IMF remains fully functioning and operational."  This has the whiff of this scene from Animal House -- except that I suspect acting Managing Director John Lipsky and his awesome moustache will do a much better job of keeping everyone calm than Kevin Bacon ever did.  The real tangle would come is Strauss-Kahn -- or "DSK" as he's known in  France -- fights this in court and refuses to step aside gracefully.  It already appears, however, that the IMF won't invoke diplomatic immunity -- and based on past behavior, DSK would likely resign first. 

2)  One does wonder if this scandal will finally upend a decades-long convention that dictates the head of the IMF being a European and the head of the World Bank being an American.  On the one hand, this same kind of talk occurred after Paul Wolfowitz had to resign as World Bank president in 2007, and Robert Zoellick replaced him.  On the other hand, that was a whole financial crisis ago.

3)  So, in the past five years, two heads of international financial institutions have been implicated in scandal.  I'd recommend Swiss authorities take a good, hard look at Bank of International Settlements General Manager Jaime Caruana.  These jobs clearly seem to attract bad seeds.  At this rate, these institutions will make the IOC or FIFA start to look ethical. 

4)  The French reaction to DSK's arrest might cure many Westeners of the schadenfreude they felt in response to Pakistani conspiracy theories surrounding the death of bin Laden.  As Philip Gourevitch blogs: 

This being France, within minutes of the first news of D.S.K.’s arrest, there were rumors that he was the victim of a plot. Christine Boutin, the leader of the Christian Democrats in France, declared that D.S.K. had been entrapped, although she did not specify by whom, or how—but there was no shortage of possibilities floating in the French ether today: Sarkozy, of course, or Socialist rivals, or else, I heard someone say, the Russians who are unhappy with how he has dealt with them at the I.M.F., or maybe the Greeks, whose economy has self-destructed almost as thoroughly as he now has. You could even find D.S.K. being called the new Dreyfus. In conversations with writers, and reporters, and intellectuals around Paris today, I found that nobody quite believed these fancies, but nobody could resist speculating about them either. D.S.K.’s behavior, in and of itself, was just too suicidal to make sense entirely by itself.

See also Adam Gopnik on these points. 

The real problem with the arrest is that it appears that the only French politician to offer the right response is ultranationalist Marine Le Pen, who correctly observed that given DSK's past indiscretions with women, this was a long time coming.  This will onky boost Le Pen's chances of advancing to the second round of the presidential election.  Richard Brody explains why that's a problem:

The world of French politics is haunted by the 2002 elections: then, backers of the eliminated moderate-left candidate, Lionel Jospin, a Socialist, joined forces with the moderate right to give Chirac an overwhelming victory in the runoff, in a repudiation of the F.N. One of the leading factors in Jospin’s first-round elimination was the fragmentation of the left among candidates from a variety of parties. Now, it’s the unpopular Sarkozy whose party is falling apart, and who is doing his best not to offend the F.N. (as in recent regional elections, in which he expressed no second-round preference between that party and the Socialists), in the hope of siphoning away enough of its voters to slip into the second round instead of Marine Le Pen.

In effect, Marine Le Pen is the spoiler: any candidate she faces in the second round is sure to win (because voters and parties will unify to keep the far-right out of power); she will either eliminate the moderate right or the moderate left.

Elections in which one of the two choices is simply unelectable are unhealthy for democracy -- they lead to malaise and alienation from the democratic process.  Unfortunately, it looks like France is headed in that direction. 

5) I hereby issue a challenge to the readers to come up with their best joke about IMF conditionality and DSK in the comments. 

Your humble blogger is in Brussels recovering from jet lag to discuss Very Important Questions about the future of global trade.  Since I'm thinking about this topic, it's worth noting that former U.S. Trade Representative Susan Schwab wrote, by trade policy standards, a rather provocative Foreign Affairs essay on the Doha round.  The first paragraph:

It is time for the international community to recognize that the Doha Round is doomed. Started in November 2001 as the ninth multilateral trade negotiation under the auspices of the General Agreement on Tariffs and Trade and its successor, the World Trade Organization (WTO), the talks have sought to promote economic growth and improve living standards across the globe -- especially in developing countries -- through trade liberalization and reforms. Yet after countless attempts to achieve a resolution, the talks have dragged on into their tenth year, with no end in sight.

Schwab suggests that negotiatiors admit defeat on Doha, agree on whatever has been agreed, and ditch the bargaining round template that's governed most GATT/WTO trade talks in favor of more plurilateral approaches. 

I confess to mixed feelings about this argument.  On the one haand, Schwab is correct that Doha is deader than a doornail, and the G-20 loses just a little credibility every time it pledges to finish the round in a communique.  That said, I'm dubious of what plurilateral measures can do on their own, and in the absence of forward momentum at the WTO, more and more trade action will take place outside WTO auspices. 

What do you think?  Should Doha just be declared dead?